The municipal-bond market has experienced a bit of turbulence recently, as investors fled to the safety of cash and munis' historically low yield provided little cover.
Bond ETF prices have recently experienced a bit of a disconnect with their NAVs, but that shouldn't be an issue for investors who aren't actively selling shares during the turbulence.įidelity Limited-Term Municipal Income FSTFX Morningstar Analyst Rating: Silver Low costs help ensure that it closely tracks its benchmark, Bloomberg Barclays US 1–5 Year Government/Credit Float Adjusted Index. But in an equity-market shock that features a flight to quality, like the one we've experienced recently, the fund does a good job of holding its ground. Performance won't look distinguished in "risk-on" markets when more credit-sensitive peers are paid for venturing into riskier fare. With a short duration and a portfolio that's heavy on Treasury bonds, it's not surprising that losses have been few and far between here. Vanguard Short-Term Bond Index VBIRX/BSV Morningstar Analyst Rating: Silver Max Drawdown: -1.52% (4/2008-10/2008) 15-Year Return: 3.03% True to form, it has stayed in the black and ranks in its short-term bond category's best 20% over the past month through March 13. Indeed, senior analyst Eric Jacobson notes that the fund has notched 30 years of positive returns, a function of its typically short duration and focus on high-quality credits. Its worst loss over the past 15 years was a 0.85% drop during 2013's "taper tantrum," but it still managed to post a small gain for the whole of the year. This has long been one of the most preservation-minded bond funds: Its aim is to deliver positive returns of 100 basis points beyond CPI over five-year periods and positive returns over 12-month stretches. I've included 15-year annualized returns (through March 13) alongside the drawdowns to illustrate the interplay between low volatility and returns. Here are some of the funds with the lowest max drawdowns over this (admittedly arbitrary) 15-year period. Not surprisingly, the funds with the lowest maximum drawdowns tend to cluster in categories we know to be low-risk: short-term, high-quality bond funds, as well as large-cap, dividend-focused equity funds. I ranked Morningstar Medalist funds and ETFs by this measure. By extension, funds had to have track records of at least 15 years to be included in this screen. I chose to examine maximum drawdowns over the past 15 years through February, which encompasses the financial crisis and a variety of other economic shocks prior this recent market downturn.
#Difference bond stock mix portfolio drawdown software
To help home in on some top-quality lower-risk stock and bond funds that have been battle-tested across a variety of economic environments, I used Morningstar Direct software to focus on a statistic called Maximum Drawdown, which depicts the biggest loss a fund has endured over a given period. But most of the low-volatility ETFs weren't around the last time the markets went down and stayed down-the financial crisis of 2007-2009.
In general, however, Morningstar's investor return research points to a connection between lower-volatility products and better investor outcomes.Īcademic research has also pointed to the virtue of low-volatility stocks, and a bumper crop of exchange-traded funds have arrived to invest in that market segment. You wouldn't necessarily want a portfolio composed entirely of low-risk stock and bond funds, because risk protection usually comes at the expense of return potential. You can also reduce your portfolio's risk level by tweaking the types of stocks and bonds you hold, making room for one or two holdings that have managed to hold up better than their counterparts in periods of market duress. After all, a bad year for bonds, the saying goes, is like a bad day for stocks. If your spending horizon is close at hand-you expect to retire within the next few years, for example-it's wise to keep the funds you'll need to cover near-term spending in safer assets like cash and bonds. When the market is seized by volatility as it has been lately, one of the first things to check is whether your portfolio's mixture of stocks, bonds, and cash is in line with how much risk you can afford to take.
0 kommentar(er)
